Hong Kong sets to be world's largest IPO market in 2016
Another round of IPO momentum expected when liquidity shores up after RMB joins IMF's SDR basket, Mainland's insurance companies invest in Shanghai-HK Stock Connect and U.S. interest rate hike expectation stabilizes
Published: 26 September 2016
Having backed by a number of large share flotations from Chinese financial services institutions, Hong Kong is expected to maintain its leadership in the global initial public offering (IPO) fundraising ranking towards the end of third quarter of 2016, according to the latest review and outlook analysis of the IPO markets of Hong Kong and the Chinese Mainland conducted by the National Public Offering Group of professional services organization Deloitte China. Without any prominent new listings, stock exchanges in Shanghai and Shenzhen are to follow that in New York. Hong Kong's IPO momentum is expected to be braced capital inflows after the Renminbi is added into IMF's Special Drawing Right (SDR) basket, investment from Mainland's insurance companies into Shanghai-Hong Kong Stock Connect, and the U.S. interest rate hike expectation stabilizes. IPO activities at Shanghai and Shenzhen, however, are anticipated to remain stable at efforts of the authorities to regulate the stock market.
By 30 September 2016, Hong Kong would have seen 71 IPOs raising approximately HK$136.4 billion. Both figures are down by 1% and 13% respectively from 72 IPOs and HK$156.4 billion funds raised in the same three quarters of 2015. More than 80% of this year's funds raised were from Chinese financial services institutions, a significant jump from 49% of last year.
“The no-go decisions with U.S. interest rate hike in July and September helped excite the market and hurled some large offerings in July and thereafter. After months of concern over the downward pressure on the Chinese economy, the market was glad to see signs in August indicating that the Chinese economy is improving. These factors have created a stable listing window for a Chinese bank, which is potentially the largest IPO of the year,” said Mr. Edward Au, Co-Leader of the National Public Offering Group at Deloitte China.
At the same time, IPO performance in Shanghai and Shenzhen are expected to be weakened when compared with last year. By end of this third quarter, Shanghai and Shenzhen would have completed 120 IPOs together raising about RMB74.9 billion, 38% fewer in the number of new listings and 49% less in proceeds respectively from 192 IPOs raising RMB147.4 billion in the same period of last year.
“But the IPO market rebounded in the third quarter after six slow months from the beginning of the year. We are delighted to see a mega listing from a city commercial bank in August at last after none from the banking sector in China for many years. The new listing has encouraged three other similar banks to go public and more are expected to join them,” noted Mr. Anthony Wu, Leader of China A-Share Capital Market of the National Public Offering Group, Deloitte China.
In terms of the funds raised against other major stock exchanges, Hong Kong is expected to claim the top spot in the ranking after helping seven Chinese financial institutions to go public and raising the biggest share of funds in the market. New York is to fall behind with a significant gap and to be followed by Shanghai and Copenhagen. Despite the fact that Copenhagen completed the fewest number of IPOs, it has been benefited from two huge offerings, thus has surpassed NASDAQ which is likely to take the fifth position this year in terms of funds raised.
In the last quarter, with in the pipeline another three to four jumbo IPOs, including a securities group and a pharmaceutical group, each targeting to raise at least HK$7.8 billion, Hong Kong is going to see its IPO leadership further cemented. A pipeline of over 150 IPO applications, many of small and medium offerings, also means that the IPO momentum will prevail especially after numerous favourable developments that attract inflow capital into the market. For these reasons, Deloitte maintains its forecast of 115 IPOs raising HK$200 billion for Hong Kong for the entire year of 2016.
Mr. Au added that Hong Kong has well demonstrated its advantage as the most preferred fundraising venue for Chinese companies after two years of strong performance boosted by Chinese financial services institutions. Having proved its capabilities of helping companies to build eminence in Hong Kong and the Chinese Mainland through IPOs as well, it is time for Hong Kong to raise its profile of its ability and draw companies from more diverse sectors and jurisdictions especially the small and medium-sized businesses from other Asian markets, given a number of such applications in the pipeline. Mr. Au explained that it is through diversifying the portfolio of issuers in terms of the industry sectors and countries that Hong Kong can become a truly international IPO market.
In the last quarter, Mainland's IPO activities are likely to move similar in direction and pace as earlier in the year at an ongoing market control efforts. Without the introduction of a registration-based regime for new shares this year, the market is unlikely to see a quick jump in IPOs even with some upcoming encouraging developments including MSCI’s creation of 20 indices to include A-shares, the inclusion of Renminbi in the IMF's SDR basket and the upcoming launch of Shenzhen-Hong Kong Stock Connect. Mr. Wu said many of the IPOs in the fourth quarter will still be of manufacturing and technology companies and of small and medium scale. Deloitte, therefore, forecasts that about 180-220 IPOs would be completed to raise RMB86-106 billion in the A-share market by the end of 2016.
Notes to editor:
Unless specified otherwise, all statistics were updated with estimations till 30 September 2016.
However, statistics on the number of companies under Chinese IPO review were updated to 22 September 2016.
Sources of the statistics for the Hong Kong IPO market: Hong Kong Stock Exchange, Deloitte analyses, excluding the transfer of listings from Growth Enterprise Board to the Main Board and seven newly-listed companies at the Main Board which are expected not to announce its market stabilization action by 30 September 2016.
Sources of the statistics for the A-share IPO market: China Securities Regulatory Commission, Deloitte estimates and analyses.